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3SBio Inc. Announces Third Quarter 2008 Results
Date:11/10/2008

SHENYANG, China, Nov. 10 /Xinhua-PRNewswire-FirstCall/ -- 3SBio Inc. (Nasdaq: SSRX) ("3SBio" or the "Company"), a leading China-based biotechnology company focused on researching, developing, manufacturing and marketing biopharmaceutical products, today announced its unaudited financial results for the third quarter ended September 30, 2008.

Third Quarter 2008 Financial Highlights:

-- Total net revenues increased 21.6% over the third quarter 2007 to

RMB68.2 million (US$10.0 million).

-- Net revenue from recombinant human erythropoietin ("EPO") products,

marketed under the EPIAO brand, increased 17.5% over the third quarter

2007 to RMB42.7 million (US$6.3 million).

-- Net revenue from protein-based therapeutic recombinant human

thrombopoietin ("TPO") products, marketed under the TPIAO brand

increased 39.3% over the third quarter 2007 to RMB19.7 million (US$2.9

million).

-- Operating income increased 21.4% over the third quarter 2007 to RMB20.7

million (US$3.1 million).

-- One-time impairment loss of approximately RMB19.1 million (US$2.8

million) for the third quarter 2008. This impairment loss was related

to a US$3.0 million aggregate principal amount of Floating Rate Notes,

which are linked to the credit of Lehman Brothers Holdings Inc. and

mature on January 21, 2009, subject to certain conditions.

-- Net income decreased 92.3% over the third quarter 2007 to RMB1.9

million (US$0.3 million).

-- Net income per American depositary share ("ADS") for the third quarter

2008 was RMB0.09 (US$0.01) compared with RMB1.11 (US$0.15) for the

third quarter 2007.

Nine Months Ended September 30, 2008 Financial Highlights:

-- Total net revenues increased 36.2% over the nine months ended September

30, 2007 to RMB183.2 million (US$27.0 million).

-- Net revenue from EPIAO increased 26.1% over the nine months ended

September 30, 2007 to RMB115.2 million (US$17.0 million).

-- Net revenue from TPIAO increased 63.3% over the nine months ended

September 30, 2007 to RMB51.2 million (US$7.5 million).

-- Net income decreased 35.6% over the nine months ended September 30,

2007 to RMB41.0 million (US$6.0 million).

-- Net income per ADS was RMB1.89 (US$0.28) compared with RMB3.08

(US$0.41) for the nine months ended September 30, 2007.

Dr. Jing Lou, Chief Executive Officer of 3SBio, commented, "During the third quarter we delivered another quarter of solid top-line growth and further demonstrated our ability to consistently execute on our business strategy. As our core EPIAO and TPIAO products maintained their market leading positions within their respective market segments, quarterly net revenues grew 21.6% year-over-year and gross margin levels remained robust at 91.3%."

"As we strive to position ourselves for sustainable long-term growth, we have made significant headway on our research and development objectives set at the beginning of this year. Our 36,000 IU dosage formulation of EPIAO was submitted for SFDA approval in September and, once approved, is expected to provide us with the distinct competitive advantage of offering a convenient, once-a-week treatment option to anemic chemotherapy patients. We also submitted NuLeusin, our second generation IL-2 to treat late stage renal cancer, for regulatory approval. Upon SFDA approval, we believe NuLeusin will further expand our presence within China's growing oncology markets by providing oncologists with a new treatment option for those cancer patients who have exhausted their options. Additionally, we remain on track with our SFDA submission of TPIAO ITP by the end of 2008. I am confident that these enhancements to our pipeline and diversification to our product portfolio will not only enhance future revenue and earnings growth, but also further solidify our position as a market leader in the growing Chinese biotech industry."

"We believe our strong balance sheet and free cash flow provide us with sufficient resources to execute our strategic initiatives. Construction of our new manufacturing facility is also on schedule and we look forward to increasing our capacity to support our next phase of growth. Given our strong third quarter operating results and the positive outlook of the Chinese pharmaceutical market, we reaffirm our full year revenue guidance in the range of US$34 to US$35 million and are well-poised to deliver on our commitment to enhance long-term shareholder value."

Third Quarter 2008 Unaudited Financial Results

Net Revenues. Net revenues amounted to RMB68.2 million (US$10.0 million) in the third quarter 2008, compared with RMB56.1 million in the third quarter 2007, representing an increase of 21.6%. Net revenues from EPIAO increased by 17.5% from RMB36.3 million in the third quarter 2007 to RMB42.7 million (US$6.3 million) in the third quarter 2008, primarily due to continued strong product demand and further penetration into the growing oncology and nephrology markets. Net revenues from TPIAO increased 39.3% year-over-year from RMB14.2 million to RMB19.7 million (US$2.9 million). TPIAO remained the second largest revenue contributor, accounting for 29.0% of total net revenues in the third quarter 2008 as compared with 25.3% in the third quarter 2007. Revenue from 3SBio's export business was RMB2.4 million (US$0.4 million), a decrease of 14.8% over the third quarter 2007. Revenue from the Company's in- licensed Iron Sucrose supplement was RMB1.7 million (US$0.3 million), representing a significant increase of 56.1% over the third quarter 2007.

Gross Profit. Gross profit increased 21.4% to RMB62.2 million (US$9.2 million) in the third quarter 2008 from RMB51.3 million in the third quarter 2007. Gross margin remained stable at 91.3% in the third quarter 2008, compared with 91.5% in the third quarter 2007.

Operating Expenses. Total operating expenses increased 21.4% to RMB41.5 (US$6.1 million) in the third quarter 2008 from RMB34.2 million in the third quarter 2007, primarily attributable to increases in both sales, marketing and distribution and general and administrative expenses. To a lesser extent, increases in research and development expenditures also contributed to the rise in total operating expenses.

Research and development expenses, representing 6.2% of total net revenues, increased 10.0% to RMB4.2 million (US$0.6 million) in the third quarter 2008 from RMB3.9 million in the third quarter 2007. This increase was mainly attributable to expenses associated with our high dosage EPIAO, HPV vaccine and other research and development projects.

Sales, marketing and distribution expenses, representing 42.9% of total net revenues, increased 13.6% to RMB29.3 million (US$4.3 million) in the third quarter 2008 from RMB25.8 million in the third quarter 2007 primarily as a result of increased personnel, travel, conference, promotional and advertising costs in line with the expansion of our sales and marketing team and geographical network in China.

General and administrative expenses, representing 11.8% of total net revenues, increased 74.5% to RMB8.0 million (US$1.2 million) in the third quarter 2008 from RMB4.6 million in the third quarter 2007 primarily as a result of increased cost of personnel, investor relations and compliance with listing and regulatory requirements for a public company.

Income from Operations. Operating income for the third quarter 2008 was RMB20.7 million (US$3.1 million), representing a 21.4% year-over-year increase from RMB17.1 million. Operating margin for the third quarter 2008 was flat year-over-year at 30.4%.

Other Income/Expenses Net. Net other expenses was RMB14.6 million (US$2.2 million) in the third quarter of 2008 as compared to other income of RMB9.4 million in the third quarter of 2007 primarily due to the one-time impairment loss as described below and in more detail in our third quarter preliminary results press release dated October 31, 2008.

Impairment Loss. 3SBio recognized a one-time impairment loss of approximately RMB19.1 million (US$2.8 million) related to US$3.0 million aggregate principal amount of Floating Rate Credit Linked Notes due on January 21, 2009 held by the Company. The remainder of the Company's investment portfolio is primarily made up of investment grade bonds with an expected aggregate fair market value of approximately RMB58.7 million (US$8.6 million) as of September 30, 2008.

Interest income. Interest income decreased 42.6% to RMB5.5 million (US$0.8 million) in the third quarter 2008, as compared with RMB9.5 million in the third quarter 2007, primarily attributable to a decrease in cash deposits, lower interest rates relating to the Company's deposits and the depreciation of the U.S. dollar against the Renminbi.

Income before Income Tax Expense and Minority Interests. As a result of the foregoing, income before income tax expense and minority interests decreased 77.1% from RMB26.5 million in the third quarter 2007 to RMB6.1 million (US$0.9 million) in the third quarter 2008.

Income Tax Expense. Income tax expense increased 91.3% to RMB4.3 million (US$0.6 million) in the third quarter 2008 from RMB2.2 million in the third quarter 2007. The rise in tax expense was primarily attributable to an increase in the enterprise income tax rate for a major operating subsidiary in China from 15% to 18% effective from January 1, 2008, and a decrease in interest income from 3SBio Inc., incorporated in Cayman Islands, that is not subject to tax. The effective tax rate was 70.5% for the third quarter 2008, as compared with 8.4% for the prior year period, due to the one-time impairment loss on investment securities that does not qualify for tax relief.

Net Income. Net income decreased 92.3% to RMB1.9 million (US$0.3 million) in the third quarter 2008 from RMB24.1 million in third quarter 2007, mainly attributable to the one-time impairment loss.

Nine months ended September 30, 2008 Unaudited Financial Results

Net revenues. Net revenues increased 36.2% to RMB183.2 million (US$27.0 million) in the nine months ended September 30, 2008 from RMB134.5 million during the same period of 2007, supported by increased sales from our core EPIAO and TPIAO products. Net revenue from EPIAO was RMB115.2 million (US$17.0 million), representing an increase of 26.1% from RMB91.4 million in the nine months ended September 30, 2007. Net revenue from TPIAO increased 63.3% to RMB51.2 million (US$7.5 million) for the first nine months of 2008 from RMB31.4 during the same period in 2007. In addition, revenue from our export business was RMB7.1 million (US$1.1 million), representing an increase of 38.4% over the first nine months of 2007, while revenue from the in- licensed Iron Sucrose supplement was RMB5.2 million (US$0.8 million), representing an increase of 132.0% over the first nine months of 2007.

Income from Operations. For the nine months ended September 30, 2008, operating income increased by 18.1% to RMB50.1 million (US$7.4 million), compared with RMB42.4 million in the same period last year. Operating margin for the first nine months in 2008 was 27.3% as compared with 31.5% for the first nine months in 2007.

Net Income. Net income for the nine months ended September 30, 2008 decreased 35.6% to RMB41.0 million (US$6.0 million) compared with RMB63.6 million for the same period in 2007. Net margin for the first nine months in 2008 was 22.4% as compared with 47.3% for the same period in 2007. The decrease in net margin was primarily attributable to the decline in net income caused by the one-time impairment loss in the third quarter 2008. Additionally, lower interest income and higher income tax expense due to the increase in the enterprise income tax rate for a major operating subsidiary in China from 15% to 18% effective from January 1, 2008 also contributed to the downward pressure on net margin. Net income per ADS for the first nine months of 2008 decreased to RMB1.89 (US$0.28) from RMB3.08 (US$0.41) in the corresponding period in 2007.

Statement Regarding Unaudited Financial Information

The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on the Company's year-end financial statements, which could result in significant differences from this unaudited financial information.

Currency Convenience Translation

For the convenience of readers, certain RMB amounts have been translated into US dollars at the rate of RMB6.7899 to US$1.00, the noon buying rate for US dollars in effect on September 30, 2008 for cable transfers of RMB per US dollar as certified for customs purposes by the Federal Reserve Bank of New York.

Share Repurchase Program

As previously announced, the Company's board of directors has approved a share repurchase program in March 2008, authorizing the Company to purchase up to US$20.0 million worth of its outstanding ADSs from time to time in the open market over a period of 12 months commencing from March 21, 2008. In the third quarter 2008, the Company repurchased a total of 217,600 ADSs (equivalent to 1,523,200 ordinary shares) from the open market at an average price of US$9.7319 per ADS, totaling approximately US$2.1 million (RMB14.5 million). The management will continue to evaluate market conditions and take appropriate steps accordingly to best serve the Company's interest and that of its shareholders.

2008 Full Year Guidance

Based on current market and operating conditions, 3SBio maintains its total net revenue target for the full year 2008 of US$34 to US$35 million.

Conference Call

3SBio senior management will host a conference call at 5:00 am (Pacific) / 8:00 am (Eastern) / 9:00 pm (Beijing/Hong Kong) on Tuesday, November 11, 2008 to discuss its 2008 third quarter financial results and recent business activity. The conference call may be accessed by calling (US) +1 480-629-1990 / (UK) +44 20-8515-2302 / (HK) +852 3009-5027. A telephone replay will be available shortly after the call until November 25, 2008 at (US) +1 303-590- 3030 / (UK) +44 207-154-2833, Passcode: 3932898#; and (HK) +852 2287-4304, Passcode: 133110#.

A live webcast of the conference call and replay will be available on the investor relations page of 3SBio's website at http://www.3sbio.com/en/News/xShowInfo_nnnn1.aspx?ID=129.

About 3SBio Inc.

3SBio Inc. is a leading, fully integrated biotechnology company focused on researching, developing, manufacturing and marketing biopharmaceutical products, primarily in China. For more information, please visit 3SBio on the web at http://www.3sbio.com

Safe Harbor Statement

Statements in this release may contain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon 3SBio management's current expectations, and actual results could differ materially. Among the factors that could cause 3SBio's actual results to differ from what the company currently anticipates may include competition from other domestic and foreign pharmaceutical companies; the expected market growth for pharmaceutical products in China; market acceptance of 3SBio products; expected hospital or patient demand for our products; the completion of 3SBio's ongoing clinical trials as planned; receipt and timing of regulatory approvals for 3SBio's new products and uses; 3SBio's ability to expand its production, sales and distribution network and other aspects of its operations; its ability to effectively protect its intellectual property; changes in the healthcare industry in China, including changes in the healthcare policies and regulations of the PRC government and changes in the healthcare insurance sector in the PRC; and fluctuations in general economic and business conditions in China. For additional information on these and other factors that may affect the 3SBio's financial results, please refer to the company's filings with the Securities and Exchange Commission at http://www.sec.gov. 3SBio undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this press release.

For more information, please contact:

Investor Contact:

David Chen, COO

3SBio Inc.

No.3 A1, Road 10, Shenyang Development Zone

Shenyang, China 110027

Tel: +86-24-2581-1820

Email: IR@3sbio.com

Web site: http://www.3SBio.com

Investor Relations (US):

Mahmoud Siddig, Director

Taylor Rafferty

205 Lexington Avenue, 8th Floor

New York, NY 10016

Tel: +1-212-889-4350

Email: 3sbio@taylor-rafferty.com

Web site: http://www.taylor-rafferty.com

Investor Relations (HK):

Ruby Yim, Managing Director

Taylor Rafferty

3213 Cosco Tower

183 Queen's Road Central

Hong Kong, China

Tel: +852-3196-3712

Email: 3sbio@taylor-rafferty.com

Web site: http://www.taylor-rafferty.com

Media Contact:

John Dudzinsky, Director

Taylor Rafferty

205 Lexington Avenue

8th Floor

New York, NY 10016

Tel: +1-212-889-4350

Email: 3sbio@taylor-rafferty.com

Web site: http://www.taylor-rafferty.com

3SBio Inc. and subsidiaries

Unaudited consolidated balance sheets

(expressed in thousands)

December September September

31, 2007 30, 2008 30, 2008

RMB RMB US$

Assets

Current assets

Cash and cash equivalents 811,026 675,453 99,479

Accounts receivable, less allowance

for doubtful accounts:

December 31, 2007 -

RMB5,257; September 30, 2008 - 55,186 87,303 12,858

RMB5,874 (US$865)

Inventories 6,882 7,686 1,132

Prepaid expenses and other

receivables 12,074 10,962 1,614

Structured deposit 3,527 -- --

Available-for-sale securities -- 1,757 259

Deferred tax assets 2,335 1,762 260

Total current assets 891,030 784,923 115,602

Available-for-sale securities 15,196 58,691 8,644

Property, plant and equipment, net 49,465 64,248 9,462

Lease prepayments 9,247 8,982 1,323

Intangible assets -- 5,500 810

License fee -- 6,790 1,000

Non-current deposits 6,124 20,341 2,996

Income tax receivable 556 -- --

Deferred tax assets 1,857 1,491 220

Total assets 973,475 950,966 140,057

Liabilities

Current liabilities

Accounts payable 1,693 2,843 419

Deferred grant income 374 374 55

Accrued expenses and other payables 22,626 25,397 3,740

Income tax payable -- 5,195 765

Other current liabilities 67 73 11

Total current liabilities 24,760 33,882 4,990

Deferred grant income 3,526 3,245 478

Other liabilities 848 791 116

Total liabilities 29,134 37,918 5,584

Commitments and contingencies

Minority interests 549 377 56

Shareholders' equity

Share capital -

ordinary shares US$0.0001 par value,

500,000,000 shares authorized,

152,099,155 and 150,575,955 shares

issued and outstanding as of

December 31, 2007 and September 30,

2008, respectively 122 121 18

Additional paid-in capital 917,527 904,793 133,256

Accumulated other comprehensive loss (48,338) (107,724) (15,865)

Retained earnings 74,481 115,481 17,008

Total shareholders' equity 943,792 912,671 134,417

Total liabilities and shareholders'

equity 973,475 950,966 140,057

3SBio Inc. and subsidiaries

Unaudited quarterly consolidated statements of income (expressed in thousands, except per share, per ADS and other share and ADS

data)

For the Three Months Ended September 30,

2007 2008 2008

RMB RMB US$

Net Revenues:

EPIAO 36,296 42,650 6,282

TPIAO 14,172 19,736 2,907

Intefen 1,229 1,398 206

Inleusin 204 186 27

Export 2,864 2,439 359

Iron 1,110 1,733 255

Others 189 8 1

Total 56,064 68,150 10,037

Cost of revenues (4,788) (5,923) (872)

Gross profit 51,276 62,227 9,165

Operating expenses

Research and development expense (3,857) (4,242) (625)

Sales, marketing and distribution

expense (25,761) (29,260) (4,309)

General and administrative expense (4,595) (8,018) (1,181)

Total operating expenses (34,213) (41,520) (6,115)

Operating income 17,063 20,707 3,050

Other income/(expenses), net

Interest income 9,509 5,461 804

Interest expense (83) -- --

Grant income 87 94 14

Impairment loss on investment -- (19,144) (2,819)

Others (112) (1,058) (156)

Total other income/(expenses), net 9,401 (14,647) (2,157)

Income before income tax expense

and minority interests 26,464 6,060 893

Income tax expense (2,233) (4,272) (629)

Income before minority interests 24,231 1,788 264

Minority interests, net of tax (106) 77 11

Net income 24,125 1,865 275

Net income per share:

Basic and diluted 0.16 0.01 0.00

Basic weighted average number of

shares outstanding 152,084,155 151,862,722 151,862,722

Effect of dilutive potential shares 15,000 7,222 7,222

Diluted weighted average number of

shares outstanding 152,099,155 151,869,944 151,869,944

Net income per ADS:

Basic and diluted 1.11 0.09 0.01

Basic weighted average number of

ADSs outstanding 21,726,308 21,694,675 21,694,675

Effect of dilutive potential ADSs 2,143 1,032 1,032

Diluted weighted average number of

ADSs outstanding 21,728,451 21,695,707 21,695,707

3SBio Inc. and subsidiaries

Unaudited quarterly consolidated statements of income (expressed in thousands, except per share, per ADS and other share and ADS

data)

For the nine Months Ended September 30,

2007 2008 2008

RMB RMB US$

Net Revenues:

EPIAO 91,422 115,244 16,972

TPIAO 31,356 51,212 7,542

Intefen 2,995 3,790 558

Inleusin 776 564 83

Export 5,159 7,141 1,052

Iron 2,236 5,188 764

Others 546 42 6

Total 134,490 183,181 26,977

Cost of revenues (11,690) (16,119) (2,374)

Gross profit 122,800 167,062 24,603

Operating expenses

Research and development expense (7,920) (10,038) (1,478)

Sales, marketing and distribution

expense (61,475) (81,441) (11,994)

General and administrative expense (11,000) (25,498) (3,756)

Total operating expenses (80,395) (116,977) (17,228)

Operating income 42,405 50,085 7,375

Other income/(expenses), net

Interest income 26,967 18,037 2,656

Interest expense (755) -- --

Grant income 868 281 41

Impairment loss on investment -- (19,144) (2,819)

Others (94) 2,761 407

Total other income/(expenses), net 26,986 1,935 285

Income before income tax expense

and minority interests 69,391 52,020 7,660

Income tax expense (5,582) (11,192) (1,648)

Income before minority interests 63,809 40,828 6,012

Minority interests, net of tax (191) 172 25

Net income 63,618 41,000 6,037

Net income per share:

Basic and diluted 0.44 0.27 0.04

Basic weighted average number of

shares outstanding 144,805,021 152,019,769 152,019,769

Effect of dilutive potential shares 15,000 7,222 7,222

Diluted weighted average number of

shares outstanding 144,820,021 152,026,991 152,026,991

Net income per ADS:

Basic and diluted 3.08 1.89 0.28

Basic weighted average number of

ADSs outstanding 20,686,431 21,717,110 21,717,110

Effect of dilutive potential ADSs 2,143 1,032 1,032

Diluted weighted average number of

ADSs outstanding 20,688,574 21,718,142 21,718,142


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SOURCE 3SBio Inc.
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